Congress has extended the deadline for taxpayers to complete the purchase of qualifiing homes for both first time homebuyers and long-time homebuyers. Qualifying taxpayers who had a binding contract in place by April 30, 2010 now have until September 30, 2010 to close on their new home and retain eligibility to claim their tax credit.

Here’s a quick review of how these credits work:

First-Time Homebuyer Credit

The maximum credit available to taxpayers is $8,000 for first time homebuyers. Depending on your income level, you may be eligible for all or part of the credit amount.  

The two principal eligibility requirements that must be met to claim this credit are: first-time homebuyer status and income level.

•  The IRS classifies a first-time homebuyer as a buyer who has not owned a primary residence during the three years leading up to the date of purchase.  
• The income limits for this credit changed during 2009.
  • For homes purchased on or before November 6^th, the full credit is available to taxpayers with modified adjusted gross income (MAGI) of $75,000 for single filers or $150,000 for joint filers. The credit begins phasing out when MAGI surpasses these levels and caps out at MAGI above $95,000 (single) and $170,000 (joint).
  • For homes purchased after November 6^th, the full credit is available to taxpayers with modified adjusted gross income (MAGI) of $125,000 for single filers or $225,000 for joint filers. The phase-out caps out at $145,000 for single filers and $245,000 for joint filers.

Along with the change in income levels, three restrictions were put into place when the credit was extended and expanded on November 6, 2009:

1. Dependents are not eligible to claim the credit.
2. If a home is purchased for more than $800,000, no credit is available to the homebuyer.
3. The purchaser must be at least 18 years old on the date of purchase.

The IRS requires all taxpayers claiming a homebuyer credit provide a copy of their settlement statement showing the names of the parties and signatures, address of the property, date of the purchase and contract sales price. According to Amy Stanton, branch chief of the IRS Wage and Investment Division, Form HUD-1, Settlement Statement, should provide the required information for most taxpayers. At this time, the IRS will not accept e-filed returns for those taxpayers who are claiming this credit.

Taxpayers who acquired their home in 2009 do not have to repay this credit unless the new home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

Long-Time/Repeat Homebuyer Credit

This is a reduced homebuyer credit offered as a part of the extended and expanded American Recovery and Reinvestment Act (ARRA). Like the First Time Homebuyer Credit, it is available for homebuyers to claim on their tax return for qualifying homes purchased before April 30^th (or for purchases with binding sales contracts in place by April 30^th and closed on by September 30^th).

To be eligible for this credit, a taxpayer must prove that they lived in their previous main residence for five consecutive years of the eight years preceding the purchase date of their new home.

The income limitations on this credit are the same as they are for the extended First Time Homebuyer Credit, and the restrictions that were placed on the expanded FTHC extend to this credit as well.

Taxpayers who claim this reduced credit must provide the IRS with a copy of their settlement statement showing the names of the parties and signatures, address of the property, date of the purchase and contract sales price (same as those taxpayers claiming the First Time Homebuyer Credit), as well as copies of one of the following:

a). Form 1098, Mortgage Interest Statement

b). Property tax records

c). Homeowner’s insurance records

The records provided need to cover five consecutive years over the eight-year period preceding the purchase date of your new home.

Questions, comments, concerns? Our office is here to help. Please give us a call or send us an email and we’ll gladly help you navigate this newest change in the U.S. tax world.

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Now we will focus on how you can determine how much your charitable contribution is worth. What is the true value of that nearly-new suitcase or the blouse you’ve owned for twenty years? 

The first thing that you must consider is the condition of the object your are donating. Federal law permits taxpayers who itemize to claim deductions for clothing and household items they donate to qualified charitabke organizations, so long as said donations are in good, used condition or better.

Goodwill Industries offers a guideline for donors to determine what they can and cannot donate, and what (if anything) they need to do prior to dropping their donations off. Though these are the company-wide guidelines for Goodwill, these criteria are a good rule of thumb to follow when donating to any charitable organization.

The second thing you must consider is the value of the items in question. You may have paid $300 for that nearly-new suitcase when you bought it last year, but that doesn’t mean you can claim a $300 deduction on your taxes! So how do you determine the worth of your used donations?

Goodwill Industries is trying to make the process easier for donors. The charitable organization has put together a list of the typical value of most items (considered in good condition) and has it available on their website to help taxpayers determine how much they can deduct for their donations. You can check the list out here.

It is up to you to keep track of what you donate and to whom. Make sure to keep a record of everything you donate (either a written list or pictures of the items) and to obtain a receipt from the charitable organization when the items change hands. It is imperative you keep the proof of your donation with the rest of your tax documents in case the government asks you to substantiate your claim. The amount of documentation you need depends on the value of the donation in questions. For information on record-keeping requirements, check out our blog article “How to Account for Non-Cash Contributions.” 

As always, our team is here to assist whenever you need us. If you have further questions on charitable donations (or anything else!) please let us know.

Sources:
Taxes and Your Donation (Goodwill)

Related Posts:
How to Account for Non-Cash Charitable Contributions

Not sure if your business is required to file a franchise tax report? Check and see where your entity falls on the lists below- it will give you a better idea of your filing obligation:

Entities Subject to Franchise Tax

• Partnerships (general, limited and limited liability),
• Corporations
• LLCs
• Business trusts
• Professional associations
• Business associations
• Joint ventures
• Other legal entities as defined here

Entities Not Subject to Franchise Tax

• Sole proprietorships
  • NOTE: The tax does apply to single member LLCs filing as a sole proprietor for federal income tax purposes.
• General partnerships directly and solely owned by natural persons
  • NOTE: The tax does apply to all limited liability partnerships
• Entities exempt under Texas Administrative Code Rule §3.583(d)
• Passive entities as defined under Texas Administrative Code Rule §3.582(c)

For a full list of which entities are and are not subject to the Texas Franchise Tax, check out  the Texas Franchise Tax section of the Texas Administrative Code here.

As always, we’re here to help! Our staff will gladly address any questions or concerns you may have on how the Texas Franchise Tax rules affect your business.

The survey was conducted among 651 CEOs who were asked to rank each state and the District of Columbia with consideration of three categories: living environment, quality of workforce, and taxation and regulation. Participants then evaluated each state based on five subcategories individually ranked by importance.

Texas scored high in all categories considered most important by participating CEOs, who referenced the state’s tax credits and business incentives as motivation for business to move to (or expand in) Texas.

In a recent press release, Governor Rick Perry commented, “Texas continues to be a model for the nation as the best state to live and do business…This top ranking by Chief Executive Magazine proves that our low taxes, reasonable and predictable regulatory climate and skilled workforce have not gone unnoticed.”

North Carolina, Tennessee, Virginia, and Nevada rounded out the top five of best states for business. New York and California were ranked second-to-last and last, respectively, as the worst states for business. Both states have held the same ranking for the last five years.

Sources:
http://www.chiefexecutive.net/Media/BestAndWorstStates/2010/CEStateRanks.aspx
http://governor.state.tx.us/news/press-release/14581/

The filing requirement for a tax-exempt organization depends on the yearly financial activity. Check out this handy chart (courtesy of www.irs.gov) to see what your organization is required to file:

Financial activity:                                                                                            Filing  requirement:
Gross receipts normally ≤ $25,000                                                                     990-N (e-Postcard)*
Gross receipts < $ 500,000 and total assets < $1.25 million                               990-EZ or 990
Gross receipts ≥ $500,000, or total assets ≥ $1.25 million                                   990     
Private foundation (regardless of financial activity)                                        990-PF  

*Note: Organizations eligible to file the e-Postcard may choose to file a full return.

Tax-Exempt organizations have submission deadline rules similar to those of corporations and partnerships. Unlike individual tax returns, which are all required to be filed or extended (no exceptions!) by April 15th of each year, tax-exempt organizations’ returns are due on the 15th day of the fifth month after the organization’s year-end. For many organizations, the fiscal year-end is the same as the calendar year-end, which means the return for your tax-exempt organization must be postmarked by May 15th. On years when May 15th falls on a holiday or weekend, such as it does this year, the due date falls on the nearest following business day – in this case, May 17, 2010.

As with all entities, organizations, and individuals that are required to file, there are repercussions if a tax-exempt organization doesn’t file in a timely fashion. If your organization is required to file and fails to do so for three consecutive years, the organization will automatically lose its tax-exempt status. What does that mean? It means moving forward, the organization will be required to pay income tax, contributor’s donations are no longer tax deductible, and the organization will have to go through the process of re-applying for exempt status (involving paperwork, fees, and time).

The lesson? File on time, and all will be fine.

PJA has provided tax compliance services for tax-exempt organizations for many years, but did you know we recently launched a branch of nonprofit consultation services? Services include:

• Organizational analysis
• Interim leadership and management
• Executive search
• Executive coaching
• Governance
• Fundraising
• Administration
• Strategic planning
• Qualification for certification with ECFA (Evangelical Council for Financial • Accountability) – for Christian faith-based organizations

Check out our website for more detailed information about these new services! As always, let us know if you have any questions about anything, or if we can assist your tax-exempt organization in any way. We are here to help!

She advised us that she looked to PJA for guidance in all aspects of her business life – not just for tax and accounting services. She relied upon our firm to be a steady and objective presence in her world, in good times and bad. Whenever she looked to take the business a new direction, she turned to PJA as her cornerstone for advice and recommendations she could trust. We must admit that’s exactly what we like to hear from clients – - – and exactly what we strive to develop in every client relationship. It was then we realized the image of a compass seemed the perfect symbol of this dynamic relationship that extends far beyond basic tax compliance.

What are the benefits of a compass? Why are they necessary? And how is our firm like a compass?

Compasses really became necessary when people started to believe the world wasn’t flat. Before that time, why would you need a compass? The universe of possibilities only consisted of what people could see in front of them. Your options were limited to things on this side of the horizon, never anything beyond that. When people began to consider the possibility that there may be more to the world than the distance between here and the horizon, they needed a tool to rely on that could guide them through unfamiliar waters to find both where they wanted to go and how to get home again. That same need exists in our world today.

Enter PJA. Folks need someone to guide them through today’s financial waters, someone whom they can rely on to get them safely to the next step in their lives or business. We are that tool for our clients – a compass, a cornerstone, whatever you want to call it, we are here to help our clients understand what is going on in the tax and accounting world now—and what changes are on the horizon—so they can work and live with as little worry as possible. There is so much more to our world than what appears in front of us. Our company began with the philosophy that tax and accounting are simply the means to reach our true desire – to serve clients, to help guide people to make financial decisions that would better their situations and their lives. Here at PJA, we think outside the box. We’ll help you navigate unfamiliar waters, but you can rely on us to get you to the other side safely. We are your compass, your cornerstone, your guide. Why? Because the world is not flat.

By Jami Taylor & Megan Timmons

1. Your IRA contributions may be deductible on your taxes. You can use the worksheet found on pages 32 and 33 of your Form 1040 instructions to determine how much, if any, of your contributions are deductible. You also may qualify for the Savers Credit (f/k/a the Retirement Savings Contributions Credit). You can determine your eligibility by filling out form 8880.
2. Your traditional IRA contributions can be made any time throughout the calendar year or by the original due date for filing your income tax return – simply put, that means any contribution made between January 1, 2009 and April 15, 2010 (in most cases). If you made your contribution in 2010, you need to specify the year targeted for that contribution.
3. IRA funds are generally not taxable until you begin receiving distributions from the IRA.
4. In 2009, the contribution limit for a traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.
5. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
6. You need to have taxable income – such as wages, salaries, commissions, tips, bonuses, or net income from self-employment – to contribute to an IRA. For joint filers, generally only one of you needs to have taxable earnings. See Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements, for additional information.

As always, our staff is ready, willing, and able to answer any questions you may have about IRA requirements, contributions, and tax implications. We are reachable via phone at (817)355-9292, email, or through comments here on the blog. We look forward to hearing from you, and don’t forget: only 7 days left to file your taxes or request an extension!

Happy Wednesday!

Cash Method

You are probably already familiar with the cash method of accounting, even if you don’t know it. Most individuals use the cash method in their personal finances. Also, as individual taxpayers, we use this cash basis for reporting our income to the government. Under this method, you report income and expenses when they are paid or received:

• Income is reported when payment is received from your customers.
• Expenses are recorded when the check is written to pay the vendor.

Like I already stated, this method is commonly used by folks in their personal finances because it’s so simple, but when dealing with a business, the cash method can misrepresent the true state of your business. Why? You may have $30,000 owed to vendors and $10,000 of payments due from customers, but that extreme difference in expenses vs. income won’t show up on your books until you’ve sent or received money. So your books could show expenses paid out in the amount of $5,000 and income received in the amount of $7,000, but that doesn’t accurately represent the overall financial condition of your business.

Accrual Method

The accrual method of accounting records income and expenses when an exchange of goods or services occurs, even if money is not exchanged right away. For example:

• If you provide lawn care services to a family bi-weekly, but invoice them once a month, you still count that $50 mow job as income once you’ve completed the work, even if it will be another 30 days until the family pays you. 
• If you order office supplies every week and pay off your account every month, you would record those expenses each week on your books, and make the corresponding payment entry once you’ve actually sent off your check to the vendor.

The accrual method is more complicated in that you must maintain accounts for receivables and payables, as well as record more transactions on your books. However, because you show income when it is truly earned and expenses when they are actually incurred, you will have a more correct picture of your business’s financial situation at any given time than you would under the cash method.

What Else Do You Need to Consider?

Did you know the IRS lets you use a different method of accounting on your tax return than you do for your internal reporting? It’s true! For the most part, the IRS doesn’t dictate whether a company must use cash or accrual basis reporting. You can check out a neat article here to see which types of businesses are required to use a specific basis for tax purposes.

And that’s all for today! We’ll see you back here next week for the next edition of Starting a Business. Topic: Categorizing your costs.

Source: http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_1340

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Certainly there are multiple answers to this question, but one that I find very prevalent is the long, boring board meeting. While board meetings that drag on and on while dealing with the minor problems of an organization may make some board members feel they “have a handle” on things, for others it is pure drudgery. The good news is this is a problem that can easily be fixed:

1) Start by selecting board members who have expertise in areas that would benefit the organization: accounting, legal, fundraising, administration, public relations, volunteer service, etc.

2) Allow these board members to share their expertise through committees.

3) Empower these committees to work with the staff and address the specific needs of the organization.

4) Committees, made up of a board chairperson and non-board members with similar talents to share, make regular reports back to the board on their activity.

5) Questions about these reports that arise in board meetings and stretch into “discussion” mode may need to be tabled to a committee meeting with all interested board members invited to attend.

This process can dramatically shorten board meetings. Use them for discussing policy and procedure, identifying issues of concern, assigning board projects, and hearing staff and committee reports on the status of the organization. These things by themselves can take time. Add lengthy discussion about topics most board members have no real input on and you have the recipe for a “Bored Meeting”. Make long, boring meetings the rule rather than the exception and keeping good board members will be harder than keeping cool in a Texas summer (you can do it but you have to work really hard).

Summary: Recruit good board members, allow them to work in their area of expertise and give them the authority to operate on behalf of the board. A happy board member is one who goes home from a meeting feeling fulfilled rather than empty.

By Dale Hart

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Today, we are going to answer the top 5 questions we’ve had about this credit.

1. What is the Making Work Pay Credit?

The Making Work Pay Credit was created by the American Recovery & Reinvestment Act in 2009. It provides a refundable tax credit of up to $800 for married-filing-jointly taxpayers and $400 for individuals in 2009 and 2010. For taxpayers who received a paycheck and were subject to withholding last year, the credit would generally have been handled by their employers through reduced withholding starting in the spring of 2009. Folks who did not have their withholding reduced by their employee, or did not receive the full credit through reduced withholding, can claim the remainder of the credit on their 2009 tax return.

2.  What if you were self-employed or received income other than a paycheck subject to withholding?

Self-employed folks can claim the credit on their 2009 tax return, just like those employees who did not receive theirs through reduced withholding. If you were a private pension recipient last year, then you are not eligible for this credit unless you have earned income. Additionally, taxpayers who received Social Security, Veterans Affairs or Railroad Retirement Board income last year are not eligible for the full credit.

3. How is the credit reported on individual tax returns?

The amount of the credit you received through reduced withholding will be reported on your tax return, on Schedule M. Filling out this schedule will help you figure out if you received your full credit last year or if you can claim more on your 2009 tax return.

4. Will there be any difference in how the Making Work Pay credit is received in 2010 for those taxpayers who receive it through reduced withholding?

Yes. In 2009, the Making Work Pay Credit was distributed through reduced withholding over a period of 9 months. In 2010, it will be distributed over all 12 months, so you’ll notice your paychecks are slightly smaller than last year, but still a little larger than they were in 2008.

5. Is there any chance this credit could actually make me owe on my taxes?

Yes, for certain filers, the reduced withholding that was put in place to implement this credit could reduce your refund or cause you to owe. Taxpayers who should review their withholding to make sure enough tax is withheld in 2010 include: those individuals with multiple jobs, married taxpayers with two incomes, pensioners, Social Security recipients with earned income, workers without valid Social Security numbers, and dependents. You can use Publication 919 to help determine if you are withholding enough. If you need to adjust your withholding for 2010, you need to submit a revised Form W-4 to your employer.

And that’s it for our first double-digit edition of Tax Credit Tuesdays! Only one more installment to go before the big day arrives! As always, please feel free to contact our team with any questions or concerns you may have. We are here and happy to help in any way we can!
Source: http://www.irs.gov/newsroom/article/0,,id=204447,00.html

                 http://www.irs.gov/newsroom/article/0,,id=205922,00.html

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